The empire of China’s copper magnates is shaking – Fortune | Jewelry Dukan

He Jinbi began guarding trains full of metal from thieves on freezing winter nights and built a copper trading house so powerful it can handle one in every four tons imported into China.

A born trader with an infectious sense of humor, 57-year-old Maike Metals International Ltd. an important link between China’s industrial heartlands and global traders from Glencore Plc during the rough rush for commodities in the early 2000s.

Now Maike is suffering from a liquidity crisis and He’s empire is in danger. The impact has been felt around the world: the company handles a million tonnes a year – a quarter of China’s refined copper imports – making it the largest player on the metal’s main global trade route and a major trader at the London Metals Exchange .

With his wide network of contacts providing enviable insight into China’s factories and construction sites, he was a poster child for China’s resource-driven boom for over two decades – making fortunes from his insatiable demand for commodities and then plunging it into the red. hot real estate market.

But this year, Beijing’s restrictive Covid-Zero policy has hit both the housing market and copper prices hard. After months of rumors, He publicly admitted last month that Maike had asked for help solving liquidity issues.

He said the problems are temporary and affecting only a small part of his business, but his trading partners and creditors are cautious. Some Chinese domestic traders have suspended new business, while one of the company’s oldest lenders, ICBC Standard Bank Plc, was worried enough that it was pulling some of the copper from China that had backed its lending to Maike.

Even if it can enlist the support of the government and state-owned banks, industry leaders say Maike could struggle to maintain its dominant role in China’s copper market.

As much as He’s rise was a microcosm of China’s economic boom, his current woes may mark a turning point for commodity markets: the end of an era when Chinese demand could only rise.

“In a way, May’s story is the story of modern China,” said David Lilley, who began dealing with May in the 1990s, first as a trader at MG Plc and later as a co-founder of trading house and hedge fund Red Kite. “He has mastered the dynamics of the Chinese economy, but no one was prepared for the Covid lockdowns.”

This account of He’s rise to the top of China’s extractive industry is based on interviews with business partners, rivals and bankers, many of whom asked not to be named because of the delicate situation.

A spokesperson for Maike declined to comment on the story, but responded to earlier questions from Bloomberg on September 7: “Our company has been deeply involved in the development of the resource industry for almost 30 years. It had maintained a steady development as witnessed by all. It will resume normal operations soon and continue to contribute to the development of industry and the local economy.”

copper boom

Born in China’s Shaanxi province in 1964, he was first introduced to copper when he got a job sourcing industrial materials for a local company. As a young man, he was paid to guard copper loads on trains criss-crossing China—which could be a cold job on a freezing winter night.

In 1993, he and several friends founded Maike in the western city of Xi’an, known as the capital of China’s first emperor and site of the famous Terracotta Army statues. The group took out a loan of 50,000 yuan (about US$7,200) to buy and sell mechanical and electrical products. But He’s early exposure to copper had had an impact, and they quickly shifted their focus to scrap metal, copper wire and refined copper.

With a personable personality, a big grin and a light-hearted sense of humor, he was a natural commodity trader whose charisma helped him build a wide network of friends and business contacts.

As China’s economy liberalized, he used his connections to make Maike an intermediary between major international traders and China’s growing band of copper consumers.

Within 15 years, China would go from one-tenth of the world’s copper supply to 50%, triggering a super-cycle of skyrocketing prices for the metal, used in electrical wires from power cords to air conditioners.

Were Casino

This was a wild era when China’s commodity markets were little more than a casino for many. Groups of traders banded together to bet together and launched ambushes on their opponents on the other side of the market. The bravest players would be named after the martial arts masters of popular novels.

While many traders came and went during those go-go years, He persevered.

“We did a lot of business together for over twenty years,” Lilley said. “There was a time when the Chinese metal trade was a real Wild West and it was characterized by its honesty. He would always keep his word.”

He also had another quality essential to a successful commodity trader: risk-taking.

His big break came in the early days of superbikes. In May 2005, the Chinese metal industry met in Shanghai for the annual Shanghai Futures Exchange conference. Copper prices had risen sharply, and most of the producers, processors, and traders in the audience thought they were about to fall. Even China’s powerful State Reserve Bureau had placed bearish bets.

They were shocked when Barclays analyst Ingrid Sternby predicted copper would hit new highs as Chinese demand outstripped supply. But she was soon proved right, as prices more than doubled over the next 12 months. The SRB’s losses became a national scandal and most Chinese traders missed an opportunity to capitalize on the gains.

He wasn’t among them. Paying close attention to demand from his network of Chinese consumers, he established a bullish position and benefited well from global price appreciation.

It was a pattern he would successfully repeat many times over the years. His preferred strategy was to sell options – on the other side at a price that his Chinese clients were likely to see as a buying opportunity and on the other side at a price that they were likely to consider too expensive.

While he enjoyed some of the traits of success, people who have known him for many years say he has remained down to earth even as his fortune swelled to levels that likely made him a dollar billionaire at his peak.

In Shanghai, he regularly ate at a restaurant serving Xi’an cuisine, where he ate his favorite steamed cold noodles and fried leek dumplings for 50 yuan (US$7).

financial flows

The development of He’s business reflected the changes that were taking place in the Chinese business world. Although he started simply as a distributor of physical copper, he soon pioneered the growing links between the commodity business and the financial markets in China.

As Maike rose to become the country’s leading copper importer, He began using the constant flow of metal to raise finance. He could demand upfront payments from his end customers and also borrow for the ever-increasing amounts of copper he shipped and stored in warehouses. Over the years, the link between copper and cash became established, and the ups and downs of the Chinese credit cycle became a major driver of the global market.

He would use the money from his copper business to speculate on the stock market or increasingly invest in China’s booming real estate sector. From around 2011, He built hotels and business centers and even his own warehouses in Shanghai’s Bonded Zone.

“In a way, Maike’s story is the story of modern China”

As the state became an increasingly dominant force in China’s business community, it focused on investments in its hometown of Xi’an and supported projects under Xi Jinping’s Belt and Road Initiative.

In that year, however, He’s empire began to shake.

The city of Xi’an faced a month-long lockdown in December and January and further restrictions in April and July as Covid resurfaced, hurting He’s real estate investments. His hotels sat almost empty for months, and some commercial tenants simply stopped paying rent.

Maike was one of several companies that tumbled their fortunes into the real estate market during the boom years, said Dong Hao, head of the Chaos Ternary Research Institute. “After the sharp turnaround in the real estate sector over the past year, such companies have encountered various difficulties,” he said.

nickel squeeze

The general malaise of the Chinese economy also caused the copper price to collapse, while Maike suffered from the banks’ increasing reluctance towards the raw materials sector in China. Confidence in the industry was hurt by the historic nickel squeeze in March, as well as several aluminum and copper ore shortage scandals.

In recent weeks Maike has struggled to pay for his copper purchases and several international companies – including BHP Group and Chilean company Codelco – have stopped selling to Maike and diverted cargo.

The future is uncertain. He met a group of Chinese banks at a crunch meeting organized by the Shaanxi local government in late August. Maike later said the banks had agreed to support them, including by offering extensions on existing loans.

But its trading activities have largely ground to a halt as other traders become increasingly nervous about doing business with the company. And in the wake of May’s woes, some of the industry’s biggest banks are pulling out of metals financing in China altogether.

In China, He’s ailments evoke mixed feelings. Many mourn his situation as tragic for China’s extractive industry and emblematic of an economy increasingly dominated by state-owned companies.

Others would be less saddened by the end of a business model that turned copper into a financial asset and sometimes caused import margins to deviate from physical fundamentals.

“For many years, traders like Maike have been very important in importing copper into China – they’ve been buying very consistently to keep the funding flowing,” said Simon Collins, the former head of metals trading at Trafigura Group and the CEO of digital trading platform TradeCloud. “With the real estate market the way it is, I think the music might stop.”

–With support from Winnie Zhu.

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